What if....

Although the supercomputer theory is interesting, I find it unrealistic from a programming standpoint. I mean, somebody has to create the complex algorithms that take into account an almost infinite number of variables, which all must be weighed and analyzed in real-time. This will require tons of computing power as well as an army of programmers that will need their hands held by market gurus that can convey exactly what logic needs to be coded. Scary.

Earlier, ArchAngel mentioned the arbitratge system that takes advantage of the premium between the S&P futures and the S&P cash index. This is an example of a successful computer-automated trading system, but it's also one that is mathematically simple to implement, as there are only a few primary variables involved. It's a perfect play for a computer-controlled system because the logic is simple, it's fairly easy to program, and it requires relatively low amounts of computing power.

Anything is possible. Discretionality can be coded too.. A system need not to be pigeon-holed into a narrow definition of a set of fixed TA indicators, it can also do pattern recognition, self-learning, self-monitoring... quite what artificial intelligence is all about. A machine can beat world champion in chess, it can certainly beat a 'master senior trader' hands down.

Which is more difficult-- daytrading or sending a robot to Mars? if the latter can be programmed, of course the former can be as well. (On 2nd thought, maybe daytrading in summer is more difficult than the Mars trip

Anyway, this market is too difficult to play for me, I am gonna quit till momentum comes back in Sept. Got much more important things in life to waste time on.

We are only successful at a certain field when we are doing it for a living. At equivalent tiers, professional basketball player is always better than some guy playing it on the street, playing music for fun is meaningless compared to someone playing for a professional concert.

I would rather make 10% off a $100000 account, than 50% of a $10000 account . . . It is a very special talent to be able to trade 10K share positions and execute as if he is trading 500 shares, I don't see myself getting that kind of composure any time soon. Performing under pressure, that's the only thing that matters. $$$$$$$$, that is the only thing matters in this business, not %%%%%%%% . . .

I think most people on this board would agree that the best traders trade for a living, not to take anything away from what you have accomplished, but you are just not on the same playing field unless you prove that you can do just that, I haven't done that either, but I am not going to say just because I am profitable I have already accomplished a lot.

Look up above you, don't look down, sure there are people who lost their life saving's in the market last year, so what? You are supposed to make money every day/month as a day/swing trader. What does the name of this board say? Elite, if you are serious about something, you want to work toward being an elite.

And in trading, that means make your own decisions, is that so hard to understand?

>If you use rules, then why isn't a 'discretionary' trade a system trader after all? It makes no difference if you use many systems a day. You use rules.

A system trader's stop/exit is pre-determined. Regardless of what happens during the trade, once he takes the position, his system does the rest, no decisions are involved, this is very different from a discretionary trader who must battle his own emotions (which is the biggest advantage of going system, unemotional) in every trade (do I hold, do I pare out, do I get out) . . . A discretionary trader is reactionary once he takes the position, a system trader is NOT . . . There are many many many reasons to get out of a position for a discretionary trader, futures coming in, sector coming in, large ASK showed up, whatever. System trading meaning trust one's system to generate the exit signals and ignoring all of those other factors. You don't question whether it is a wiggle or reversal, your system handles it for you.

>So, in other words, use different systems depending on the current market conditions. A system trader, for the 100th time, does that if he/she is smart.

How do you "size-up" based on a system? You do not trade your system until certain criterias are met, when you do trade it, technically, each and every trade has about the same chance of going through if they meet the same number of criterias (at least according to system trading).

>I think a little clarification is needed. You swing trade, I said one can swing trade with a system profitably (because the fills doesn't matter as much, and backtesting actually mean something), but intraday trading is a completely different story.

Why is there anything wrong with my first post? I said there are very few successful system swing traders (compared to discretionary ones), is that wrong? Yes I am implying both, but until you build your account to a serious size (and for me, hit at least six figures a year), neither you and I can label ourselve successful.

>Nice try, though. I guess successful investing means working for an investment house too. All those people with multi million dollar retirement accounts -- that never invested as a full time job -- must be pretty unsuccessful in your eyes.

Those people either started before the start of the greatest bull market in history, or had a lot of outside income to put into their accounts, or both. I am talking about equivalent tiers. The greatest investors like Peter Lynch go at it full time.

I wonder why are we even having this discussion, to call yourself a successful programmer, lawyer, doctor . . . you have to be at it for a living, why should this be any different for trading?

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We are only successful at a certain field when we are doing it for a living. At equivalent tiers, professional basketball player is always better than some guy playing it on the street, playing music for fun is meaningless compared to someone playing for a professional concert.
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LOL!

You've got to be kidding. I think you are mixing up "more skilled at" with "successful at". Get your terms straight. I would obviously admit that, on the average, a person that does X professionally will be more skilled at X than a person that does it non-professionally (only on the average, not in every case). But this is quite different than saying "a person that does X non-professionally cannot be successful at X". The world of finance is about making money. If you are making money, then you are successful at it. It you are losing money, you are unsuccessful. A non-professional can be successful at making money. You don't need to be a professional -- doing it full time -- to be profitable.

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I would rather make 10% off a $100000 account, than 50% of a $10000 account . . . It is a very special talent to be able to trade 10K share positions and execute as if he is trading 500 shares, I don't see myself getting that kind of composure any time soon. Performing under pressure, that's the only thing that matters. $$$$$$$$, that is the only thing matters in this business, not %%%%%%%% . . .
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Who wouldn't want to make MORE money? But that's not the point.

In daytrading it is $$ per day that matter. In the rest of the universe (which is bigger) it is %%%%%%. That seems a little too simple to bother defending.

A person that makes 1,000 dollars in a week -- that uses a million dollar account -- might as well stuff their money in a mattress or a savings account. A person that makes 10% a week -- 1,000 dollars -- in a 10K account is shooting the lights out, and, given larger sizes eventually, will beat the crap out of the guy making a 1,000 a week with the million dollar account. Clearly $$$ amounts do not tell the whole story here, since both hypothetical traders made the same $$$.

Performing under pressure is key, of course. But, as you know, pressure swing trading is lower. But if you have a decent system, the money is consistent.

Slow and steady wins this race, my friend.

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I think most people on this board would agree that the best traders trade for a living, not to take anything away from what you have accomplished, but you are just not on the same playing field unless you prove that you can do just that, I haven't done that either, but I am not going to say just because I am profitable I have already accomplished a lot.
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Again, distinguish "better skilled at" from "successful".

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Look up above you, don't look down, sure there are people who lost their life saving's in the market last year, so what? You are supposed to make money every day/month as a day/swing trader. What does the name of this board say? Elite, if you are serious about something, you want to work toward being an elite.
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I don't need to make money everyday. You do. I haven't made a single trade in 2 weeks. Conditions bad for my system. Why trade long (I rarely short) in an environment that has a bad risk/reward ratio? Once I've made profits, I try to hold onto them. I don't like gambling. I like trading. There's a difference.

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And in trading, that means make your own decisions, is that so hard to understand?
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No. But I think you conflate "system trading" with "robotic adherence to 1 system in all market conditions" and thus simplify matters greatly.

You said:
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A system trader's stop/exit is pre-determined. Regardless of what happens during the trade, once he takes the position, his system does the rest, no decisions are involved, this is very different from a discretionary trader who must battle his own emotions (which is the biggest advantage of going system, unemotional) in every trade (do I hold, do I pare out, do I get out) . . .
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So, in other words, you have NO maximum stop? You average down every position to zero if necessary? You have NO parameters guiding your trade? There is NO point at which you know the trade has gone wrong? C'mon. Let's be serious.
My "pre-determined" stop is simply the point at which I know I was wrong, and it's time to get out. If a discretionary trader has no idea when to get out -- and thus no "pre-determined" maximum stop -- you might as well toss your cash out the window.

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A discretionary trader is reactionary once he takes the position, a system trader is NOT . . . There are many many many reasons to get out of a position for a discretionary trader, futures coming in, sector coming in, large ASK showed up, whatever. System trading meaning trust one's system to generate the exit signals and ignoring all of those other factors. You don't question whether it is a wiggle or reversal, your system handles it for you.
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Untrue, and a serious oversimplification. There are many reasons I will exit a trade. However, they are all codified. I have rules that I follow. Your reasons are different, and so is your time frame. But that hardly means that what you are doing isn't system-like. If you are long and the sector craps out, do you stay in? If the futures tank, do you stay in? If you have definite answers to these, looks to me like you have a system in mind that guides your trades. You have a system that says "if X occurs, I do Y". Much more in common here than you seem to want to admit.

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How do you "size-up" based on a system? You do not trade your system until certain criterias are met, when you do trade it, technically, each and every trade has about the same chance of going through if they meet the same number of criterias (at least according to system trading).
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I have rules that I follow if I want to pyramid into a trade (which I do, occassionally). In fact, most of my best trades are pyramid swing trades. And they are very system-oriented. As I said, if yours are not, then I guess you must be flipping a coin to decide.

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Why is there anything wrong with my first post? I said there are very few successful system swing traders (compared to discretionary ones), is that wrong? Yes I am implying both, but until you build your account to a serious size (and for me, hit at least six figures a year), neither you and I can label ourselve successful.
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1. I think it is EXTREMELY incorrect. Most swing traders are system traders that I know. But, of course to me "system" trading means "following a set of rules".
2. Again, you are hung up on dollar amounts. A person with 1,000 dollar account that makes 10% a week is incredibly skilled, but yet they make 100 dollars a week. More skilled than the trader with a million dollar account that makes 1,000 a week. Seems to obvious to mention. You might as well say that a kid that inherits a million dollars is successful at finance.

You said
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Those people either started before the start of the greatest bull market in history, or had a lot of outside income to put into their accounts, or both. I am talking about equivalent tiers. The greatest investors like Peter Lynch go at it full time.
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You think that the only people that have made huge gains in their accounts were either rich already or invested as a full time job? What planet are you on? From personal experience I could rattle off the names of many people I know. They started off broke, and through DCA in mutual funds over 30 years, are very rich today. And they probably spent about 5 minutes a week thinking about their investments.

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I wonder why are we even having this discussion, to call yourself a successful programmer, lawyer, doctor . . . you have to be at it for a living, why should this be any different for trading?
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False. See above evidence of your frequent conflations of "better skilled at" and "successful at".

I think we as people are doing it only on a much smaller scale. You would need a lot of money to develop this system, and then lots of capital to capitalize on it. Just remember liquidity is key!!!!! if you give up that edge nothing will work. And of course there are math Phd's who are working on this issue, or have been working on this issue for the last 2 decades. Take a look at a book, "The Predictors" Very interesting!!!

We have had this kind of conversations on another board and I do not wish to carry it over here. I think we are going way off topic here.

Let's just say we have very different priorities, very different philosophies, very different values. When I am onto something, I am very serious about it and I want to be top tier in it one day, that means playing full time, and for me, that is the line between someone who is dead serious about trading and someone who is not, is that so hard to understand? I think my career as a day trader should be labeled as failure until I make at least 100K a year, that is the expectation and standard I have set for myself. Is it wrong if I also have high expectation for others, like someone should have more than the Federal requirement for day traders before they call themselve "make a lot of money"? Nothing personal, I am just very harsh on myself and it leaks out to my expections for others.

I don't have 30 years and it is pointless to argue % versus $. At this firm the culture is make as much as you can NOW and pay off your Mercedes, and one day I hope I can be part of that culture.

It is a lot easier to make 50% with a small account than a large account. There are so many wannabe traders all over the net telling you what great % they made, the truth is if they are THAT good they WILL be working for some fund company managing much more capital, it CAN happen for ANYONE if they try HARD enough. If they are PASSIONATE about it.

Professional traders don't go two weeks without a trade because every week there is an opportunity to make money, at least for a discretionary trader I hate going so analytical on things, there are many discretionary traders at the other board and you are obviously a system trader, it is pretty damn distinctive if you ask me. It all boils down to that I believe a human is much better at trading than a system.

I will let my journals do the talking, I am not sure where I will be a year from now, you will see for yourself. This will be my last post on this thread, every time we go into a debate you take my comments, italize it and pick it apart line by line, we can be discussing this same topic for days and we will still go no where.

Baron - just a quick aside, the futures vs. cash premium arb program was indeed a fairly simple system. About the only thing that differentiates the firms who use such a program are their own specific parameters for execution costs, carrying costs, etc. that factor into at what premium boundaries the programs kick in.

However, there are a number of very successful private trading firms that use big banks of computers running very sophisticated algorithms and which process large amounts of information continuously. These firms employ more theoretical mathematicians than they do traders to develop an ongoing array of new mathematical tools and analyses to continue to give them an edge in the various securities and derivative markets they trade.

Some of these firms basically just use human traders to execute what the computer tells them to do when the specific trading instruments aren't electronically tradable. "Discretionary trading" is a bad term at such firms. They trade what the computers say to trade and they generall make a whole lot of money doing it. In some cases they may even play these kind of trades simultaneously across multiple global exchanges if the instruments are either fungible or sufficiently correlated to provide what they consider to be a profit potential.

These aren't mathematical hedgies like LTCM was, these are firms who use computers to take advantage of short term inefficiencies and disparities in markets (they're actually for the most part the reason such inefficiencies and disparities don't last very long).

Hundreds of millions of dollars are spent each year collectively by such firms in continually upgrading their technology platforms, mathematical research and development, etc. and the payoffs for them have been pretty amazing over at least the last 15 years that I know of.

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I think my career as a day trader should be labeled as failure until I make at least 100K a year, that is the expectation and standard I have set for myself.
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Of course not. I have high standards for myself as well.

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Is it wrong if I also have high expectation for others, like someone should have more than the Federal requirement for day traders before they call themselve "make a lot of money"?
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Typical Hitman here...childish, shallow, and betrays his age. Hitman thinks people are like stocks. You obviously think that poor people are lowly creatures, and that the rich are full of merit and simply astounding creatures to be emulated. I sort of pity this stance, is so one-dimensional.

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Nothing personal, I am just very harsh on myself and it leaks out to my expections for others.
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Ditto, as per my last comment.

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It is a lot easier to make 50% with a small account than a large account.
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Are you on drugs? 50% earned a year on ANY account is pretty phenomenal.

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There are so many wannabe traders all over the net telling you what great % they made, the truth is if they are THAT good they WILL be working for some fund company managing much more capital, it CAN happen for ANYONE if they try HARD enough. If they are PASSIONATE about it.
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Maybe some of the "wannabe traders" do other things for a living and have no interest in full time trading. Personally, my trading is a hobby. I enjoy it, and it is profitable. I derive my self worth from other things.

We have different philosophies, for sure. Doesn't mean I don't wish you luck. You just get a little carried away sometimes with your arrogance.

A real time num-crunching supercomputer would be helpful but I don't think it would make too much of a difference in my type of trading. Most of my attention is taken up by L2 and executions, I use TA as confirmation to my intuition.